How-To-IMMEX

An Expert's View about Regulatory Bodies in Mexico

Posted on: 6 Apr 2010

Describes general aspects on establishing an IMMEX operation in Mexico

HOW-TO-IMMEX Dear clients and friends, Given the growing interest expressed by our domestic and foreign clients in connection with the IMMEX Program and how it may affect their ability to continue business in Mexico and/or to open a new company, we have prepared a brief executive summary of the salient issues of the IMMEX Program, as well as a few basic facts on how to start up a company in Mexico. We trust you find this document useful, and welcome the opportunity to address any questions or comments you may have in connection with the matters discussed herein. Yours truly, Vázquez Tercero y Asociados, S.C. Legal Aspects I. CORPORATE MATTERS. Below are the corporate activities and tasks necessary for incorporation and start of business of a new IMMEX (Maquiladora) company in Mexico: I.1 Incorporation of a new company. Incorporation of a new company under the selected name. Such tasks include formalization of any and all documents required for incorporation by and before a notary public, filing for authorization from the Ministry of Foreign Affairs, recordation with the local Public Registry of Property and Commerce, and other related tasks. II. REGULATORY MATTERS. Several registrations and filings shall be required in accordance with the applicable local, state and federal laws: II.1 Registration before the Federal Taxpayers? Registry (?RFC?). This is necessary in order to conduct any operations in Mexico, as well as for the preparation of invoices and other commercial documents. In essence, it consists of filing for and obtaining a Federal Taxpayers? Code (Cédula de Identificación Fiscal). II.2 Registration before the Mexican Institute of Social Security (?IMSS?). A Mexican company that wishes to act as an employer must comply with the Social Security Law and obtain registration as such before the IMSS. Given that IMMEX operations are labor intensive, this registration is indispensable. II.3 Registration before the Institute of the National Employee Housing Fund (?INFONAVIT?). This registration is also a social security requirement. By law, Mexican employees that comply with certain requirements are entitled to obtain government subsidized housing loans. This process usually takes place simultaneously to the IMSS registration. III. FOREIGN TRADE MATTERS. III.1 Importers? Registry Mexican tax and customs law requires that companies that conduct import operations be registered with the Importers? Registry that is maintained by the General Customs Administration III.2 Appointment of Broker. As an ancillary process of the Importers? Registry, the Customs authorities must be notified of at least one appointment of customs broker, who shall be in charge of conducting the Mexican entity?s foreign trade operations. III.3 Ratification of legal address. Once the Mexican entity has been authorized to operate under a IMMEX program (see below), it must file before the Federal Tax authorities a ratification form regarding its registered address, as well as any other address where it shall conduct any operations registered under the program. III.4 IMMEX program The new IMMEX program (?Decreto para el Fomento de la Industria Manufacturera, Maquiladora y de Servicios de Exportación?) seeks to create a sole operating mechanism for companies that formerly benefited from PITEX and Maquila programs. The sole mechanism results in greater simplification, transparency and administrative benefits for national and foreign companies who either seek to start up operations in Mexico, or wish to continue export manufacturing processes. The Ministry of Economy is responsible for authorizing IMMEX programs, however, such entity must obtain the prior approval of the Ministry of Finance and Public Credit, thereby sharing the responsibility of authorizing these companies. For such purposes, the Maquila agreement does not need to be formalized before a notary public. What is an IMMEX authorization? It is an instrument that allows the temporary importation, without the payment of General Import Tax (GIT) and Value Added Tax (VAT), of certain goods that will be transformed, manufactured or repaired, provided such goods are thereafter returned abroad. Under NAFTA, it is considered a duty deferral program. All goods classified under the tariff headings authorized in the relevant program may be imported. Beneficiaries Companies that are deemed residents in Mexico, pursuant to the provisions of the Federal Tax Code and the Income Tax Law. Kinds There are 5 kinds of IMMEX companies, depending on the type of operations that the company intends: 2 ; Holding Company: The program is granted to a certified company called ?holding company? which integrates the operations of one or more held companies. ; Industrial: This is the most common, and refers to companies that conduct an industrial process for the manufacturing or transformation of goods that are destined to export. ; Services: Granted to companies that render services to export goods or those that render export services. ; Shelter: When one or several foreign companies provide the technology and raw materials to a company that is located in México, without the latter being able to operate the program directly. ; Outsourcing: When a company does not have the facilities to conduct manufacturing processes, and the manufacturing operations are carried out by a third-party company that is registered within the program; provided, however, that the holder of the authorization must be a ?certified? company. Benefits ; IMMEX companies may temporarily import goods that will be utilized for manufacturing processes. The term such goods remain in the country varies between 18 months for raw materials, parts and components, and packages and parking, to 2 years for trailer boxes and containers, to the entire duration of the program for certain fixed assets. ; A PROSEC program may be obtained according to the type of products that are manufactured or the export services provided. The benefit of this program is the application of preferential GIT rates. ; A Regulation 8 authorization may be obtained according to the type of products that are manufactured through the application of Chapter 98 of the Tariff Import Law. The benefit is the application of GIT rates applicable for Chapter 98 tariff items. ; Companies that have an IMMEX program and transfer the goods temporarily imported or products manufactured with such goods to other companies that have a program, may defer payment of GIT. ; IMMEX companies may temporarily transfer the authorized goods to persons other that the holders of an IMMEX program so that such persons may perform export sub-manufacturing operations, provided, however, that such persons must be registered in the program. ; In case the holder of the program does not have manufacturing facilities, it may register the company that will actually conduct the processes within its program, provided the former remains responsible for performance of obligations. Obligations ; Conduct annual sales abroad in an amount in excess of 500,000 Dollars or its Mexican Peso equivalent, or when export invoices account for at least 10% of total invoices. ; Temporarily import solely the goods that are classified under the authorized tariff headings and destine them solely to the purposes that were authorized. ; Return goods within the relevant terms. ; Maintain automated inventory control. ; Maintain the goods that are temporarily imported at the domiciles that are registered in the program. ; Report to SAT (the Tax Administration Service) the geographic coordinates of their registered address and the domiciles where manufacturing operations are conducted. ; Payment of import duties, although may select from the following: (i) the rates of the General Import and Export Taxes, (ii) the rates provided by foreign trade treaties to which Mexico is a party, or (iii) the rate provided by the relevant PROSEC, as authorized. 3 ; Antidumping duties shall only apply provided the relevant resolution that is issued as a result of an antidumping investigation so provides expressly. ; Submit an annual report in electronic form in connection with total sales and exports for the previous fiscal year, no later than on the last business day of May. Control of goods for the textile and garment sector, and other goods Annex III contains a list of the textile and garment industry goods that are subject to maximum amounts of temporary importation, while Annex II lists goods that are subject to specific requirements (i.e., pork legs, powdered milk, coffee, corn, etc.) for which their term of stay shall be 12 months instead of six. Events of suspension and/or cancellation of the program An IMMEX program may be cancelled if, inter alia, the company: defaults its obligations; defaults its tax obligations; is assesses tax liabilities in excess of $400,000 as a result of failing to evidence the legal entry or possession of foreign goods; when administrative execution proceedings have been initiated against the company as a result of execution of any tax liability derived from non-performance of tax or customs obligations, or when the SAT determines that the name or registered address of the supplier or manufacturer, beneficiary or foreign buyer, as indicated in the summary, or when invoices are false, inexistent or not found. Annual reviews The Ministry of Economy shall conduct annual reviews to verify that the authorized company has its own electronic signature; that it has an active Taxpayers? Registry; and that the registered address and addresses where the operations are conducted are registered and active in the Taxpayers? Registry. Tax aspects: Income and Value Added Tax a) Definition of ?maquila operations? for Income Tax purposes ? According to the IMMEX decree, a company that has ?maquila operations? is ?that which utilizes inventory or other goods provided directly or indirectly by a foreign resident with whom it has entered into a maquila contract, for the transformation, manufacturing or repair of such goods, or when such are used for the rendering of services?. b) VAT balances ? The term for obtaining a refund of VAT balances shall be 5 business days for certified companies, and 20 days for other companies that have an IMMEX program. The Business News of Vázquez Tercero y Asociados is a free monthly publication for our clients and friends. It is not intended to provide specific legal or economic advice, which shall be obtained according to the particular case and the client?s particular needs. Reproduction or dissemination of this document for commercial purposes is strictly prohibited. Please contact Adrián Vázquez (adrian@vazqueztercero.com), Veronica Vázquez (veronica@vazqueztercero.com) or Horacio A. López-Portillo (horacio@vazqueztercero.com) should you have any comments or questions regarding this newsletter. 4
Posted: 06 April 2010

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